USO Shorts Rebuild as Borrow Market Stays Erratic

USO ends the week with short interest at its highest level in over a month, reversing a mid-October dip and reinforcing the picture of a fund where bearish conviction runs deep even as the crude oil market itself edges higher.

The defining development since last week's note is a sharp rebuild in short positions. Short interest jumped 21% over the past five trading days to reach 92.9% of float, returning to levels last seen in late September and early October. In absolute terms, that is roughly 12.3 million shares short, up from around 10.1 million at the start of last week. The move is notable because it comes as USO's price has actually risen: the fund closed at $163.88 on Tuesday, up around 2% on the week and up more than 10% over the past month. Bears rebuilt into a rising tape.

The borrow market has continued its characteristic volatility, though conditions are somewhat less extreme than the prior week. Availability has loosened to around 71% as of October 27, a significant improvement from the 34% reading on October 26 and the near-zero prints that have appeared repeatedly through the past six weeks. The lending pool for USO remains structurally thin. Availability swung from 2.7% on October 19 to 84% on October 20, and similar whipsaws have been a recurring pattern through September and October. Cost to borrow has continued to fall: at 3.32%, it is down 39% from a month ago, when it was regularly running above 6% to 8%. The combination of cheap borrow and an availability pool that can drain to zero overnight is the defining tension in USO's lending market. Shorts are adding at a time when the borrow is inexpensive, but the pool itself can become inaccessible with little warning.

Options positioning has shifted modestly toward a less bearish stance relative to the prior weeks. The put/call ratio at 1.47 is below its 20-day average of 1.52, placing it slightly below the recent norm. That contrasts with September and early October, when the PCR was consistently running between 1.58 and 1.61. The ORTEX short score is holding in the high 60s at 69.2, a level it has occupied without much movement for the past two weeks. The score reflects elevated bearish positioning but is not at an extreme that would signal an imminent squeeze or capitulation.

On ownership, the institutional picture for USO is dominated by market-making and trading activity rather than directional conviction. Goldman Sachs holds roughly 45% of shares and Morgan Stanley around 22%, both as of June 30. These positions reflect the mechanics of ETF creation and redemption as much as any view on crude oil direction. The only 10% owner showing up in the Form 4 filings is HRT Financial, a high-frequency trading firm, whose September activity consisted of numerous offsetting purchases and sales across a single day. The net 90-day insider position is a modest 53,480 shares bought at a net value of around $8.6 million, but this is almost entirely attributable to HRT's intraday trading pattern rather than any directional commitment.

The key dynamic to watch now is whether short interest continues to climb above 93% of float while availability remains loose enough to support new entries, or whether another sudden drain in the lending pool forces a round of involuntary covering before shorts can establish the positions they appear to be seeking.